Record-setting default-prevention results benefit taxpayers, borrowers, schools
USA Funds prevents $15.8 billion in potential student-loan defaults
INDIANAPOLIS — USA Funds®, the nation’s leading education-loan guarantor, announces that its default-prevention efforts averted a record of nearly $15.8 billion in potential student-loan defaults during the fiscal year ending Sept. 30, 2006.
USA Funds supports a team of more than 200 full-time professionals, who are backed by the latest technology and a sophisticated predictive model, to counsel borrowers who have fallen 60 days or more behind in their loan payments about the options for resolving their payment problems.
USA Funds’ default-prevention efforts successfully averted default on more than 94 percent of those seriously past-due accounts, thereby preventing nearly 1.2-million potential loan defaults. As a result, USA Funds’ annual default rate declined to 1.21 percent from the previous year’s rate of 1.41 percent. The annual default rate compares the dollars of default, less dollars of loans rehabilitated, against the dollars of loans in repayment in USA Funds’ portfolio.
“Because federal taxpayers bear the largest share of student-loan-default costs, our default-prevention success significantly reduced potential federal program costs,” said Carl C. Dalstrom, USA Funds president and CEO. “And because defaults increase borrower costs by an average of one-third, our efforts provided significant savings to former students, while preserving the favorable default rates of the postsecondary institutions that we serve.”
During the year, USA Funds also enhanced its comprehensive array of debt-management and default-prevention tools. The enhancements included the following items:
USA Funds Debt Manager®. USA Funds added new features to this Web-based application, which permits schools to easily tailor communications to their student-loan borrowers to ensure that borrowers stay on the path toward successful loan repayment.
USA Funds Life Skills®. USA Funds introduced new components of its financial-literacy program for college students. The new USA Funds Life Skills materials address the special needs of graduate and professional students and other adult learners.
USA Funds Stafford Loan Guide. USA Funds introduced a new online Stafford-loan entrance-counseling tool that provides students with memorable guidance about their rights and responsibilities as student-loan borrowers. As part of a comprehensive suite of loan-counseling services, USA Funds will introduce a new online exit-counseling program next spring.
USA Funds Retention and Repayment Success. Currently being tested, this suite of USA Funds’ student-success services combines new and existing programs to enhance student-retention and graduation rates and curb student-loan delinquencies and default.
Although USA Funds gives top priority to default prevention, its federal mandate also includes recovery on behalf of taxpayers of outstanding federal education-loan debt owed by borrowers who previously defaulted on their loans. During fiscal 2006, USA Funds recovered more than $1 billion on defaulted loans. Loan rehabilitation — a default resolution that helps borrowers restore their good credit — accounted for nearly $404 million, or 39 percent, of USA Funds’ total default recoveries.